Fitch Expects to Rate ACE INA Holdings $700MM Sr. Debt Issue 'A+'

May 21, 2014 11:06 AM Eastern Daylight Time

CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to assign an 'A+' rating to the $700 million
senior unsecured 10-year note issuance planned by ACE INA Holdings Inc.,
a subsidiary of ACE Limited (ACE). The new notes will be fully and
unconditionally guaranteed by ACE and are therefore based on ACE's 'AA-'
Issuer Default Rating (IDR). Fitch expects that the net proceeds from
this new senior debt issuance will refinance $700 million of existing
debt maturing in 2015.

On Dec. 10, 2013, Fitch affirmed all of ACE's ratings as well as the
ratings for its subsidiaries. The Rating Outlook is Stable. A complete
list of ratings follows at the end of this release.

KEY RATING DRIVERS

The anticipated rating action reflects ACE's continued strong operating
performance despite competitive market conditions, strong balance sheet
position and financial flexibility with moderate leverage, and diverse
sources of revenues and earnings. ACE's operating performance is
consistently strong, characterized by low combined ratios with
manageable catastrophe losses and consistent favorable loss reserve
development and stable investment income. The company has reported a
combined ratio under 100% for 10+ consecutive years.

Fitch views the debt issuance favorably since the debt will likely be
issued at a similar interest rate versus the existing debt, and the
maturity will be extended, eliminating near-term refinancing risk.

Following the completion of ACE's financing plans, the company's pro
forma March 31, 2014 financial leverage ratio (total debt to capital
excluding FAS 115 unrealized gains and losses) will temporarily increase
to roughly 19% from 17.5%. Fitch notes that in 2013, ACE prefunded $950
million of senior debt due in 2014 and 2015, of which $500 million
matures in June 2014. Following the repayment of this debt next month,
pro forma financial leverage will decrease to roughly 18%. Fitch views
this as a reasonable amount of leverage for a company with ACE's cash
flow and earnings profile. Operating earnings-based interest coverage
has been strong at 14.6x in 2013 and 12.6x in both 2012 and 2011, years
with large weather-related losses. Fitch's expectation is that interest
coverage will continue to be favorable in the near term.

RATING SENSITIVITIES

Key rating triggers that may lead to an upgrade include very strong
operating performance with a combined ratio consistently under 85%,
material stockholders' equity growth, and maintaining a track record of
successful acquisition execution while managing financial leverage to
under 20% and run-rate leverage at or under 15%. Fitch expects operating
earnings-based interest and preferred dividend coverage to remain at or
above 15x, and for ACE's retention ratio (net premium written to gross
premium written) to increase over time to be more in line with
highly-rated peers. Future rating upgrades may also be constrained by
sovereign rating considerations.

Key rating triggers that may lead to a downgrade include a sustained
material deterioration in operating performance such that the combined
ratio is consistently less profitable at over 95%, a significant 15% -
20% reduction in stockholders' equity that is not recovered in the near
term, and financial leverage consistently over 25%. Potential for future
acquisitions and the associated integration risks and company profile
changes could lead to pressure on the ratings, upward or downward,
depending on the nature and size of the acquisition and corresponding
integration risks.

Additionally, a Fitch downgrade of Bermuda's long-term foreign currency
IDR to more than four notches below ACE's IFS rating, may promote
consideration of a downgrade in ACE's ratings. Fitch notes that ACE's
debt ratings currently benefit from narrower notching relative to the
insurance company financial strength ratings as a result of Bermuda's
moderate regulatory environment. This narrower notching may be revised
in the future as Fitch evaluates the impact of Solvency II and other
possible regulatory changes on Bermuda's insurance regime.

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